Purchase department should have Vendor evaluation mechanism. Rating of important venders will be known but many moderate and small of vendor’s ratings will not be known by memory. The rating activity is more important in large components requirements like (a) Assembly of machineries (b) Assembly of electronic goods like TV, computers, Audios and (c) Consumer goods like refrigerators, washing machines, mixers etc..

In assembly operations even if screws are not available the despatch of thousands of semi-finished goods will be held up. Finally if packing cartons are not received in time all the finished inventory will be idle, blocking store space and money.

Four categories A (excellent), B (very good), C (good) and D (average) can be made. There cannot be lesser than average as such sources will be deleted. To give these four A, B, C, D categories there has to be a common method. The ratings should had to healthy competitions and improvements amongst the vendors.

Some companies prefer to do vendor rating only for A class items and some do for both A & B class items. Since C class items are of low value and low annual consumption values, the rating is not considered very essential. For high value and high annual consumption value materials it is very essential.

Rating Factors:

1. Quality:

Percentage of rejections in batches of supplies the trend of improvement and how it compares with equivalent vendors or vendors for same material in the guiding criteria.

2. Quantity:

This pertains to upkeep of delivery schedule and comparison with equivalent sources. Here also percentage can be calculated based on quantity supplied against quantity on schedule and that gives a picture of reliability on schedule.

3. Price:

Price is a case where comparable list made, on the basis of these ratings can be given.

6. Management:

7. Financial Standing:

This is very important for buying raw materials, payment of wages and withstanding credit facilities of customers.

8. Adjustability:

Ability to readjust to changed requirements, speeding up and taking care of extra load etc. carry more weightage.

9. Progressive:

A vendor should be progressive to improve quality wise, technology wise and increase the business volume and keep good relations with one and all related to business activities.

10. MIS:

A vendor must keep track of various prices, problems, new order opportunities and be alert and actively adjust to forthcoming changes.

Purchase engineers can give grades A, B, C, D to different ten factors explained above. To give one grade per vendor the purchase manager has to give more weight age to quality, delivery schedule and price and give the rating.

For example, out of ten categories if a vendor gets ‘A’ in six categories and B&C in others, criteria for the total grades should be A. In any case the criteria should be to give more weight age to quality, delivery and price and more or less the grade given in the three will be the totality grade. Hence the experience and judgement of the purchase manager is more meaningful rather than mere statistics.

The ratings are neither permanent nor repetitive. In annual rating one who is ‘A; grade for three years can go down to B, C or out of the list and vice-versa. This is due to dynamic situations like change of Partnership, sale of firm, amalgamations, financial crisis, legal disputes, environmental and natural causes, death or resignation of an important executive or owner etc. These situations (one or more) do occur after some time and will affect the business activity. The purchase department should annually verify and change the grades (ratings) accordingly.

While talking of vendor rating, it is imperative to know that evaluation is a two-way process. Vendors also evaluate the buying company, its growth, attitude to employees and vendors, overall image etc. and accordingly take interest in arranging supplies. However good a vendor is, it will not help the case unless the buying company also is of high standard to get ‘A’ grade from the vendor.

There are many big size companies like Mysore Kirloskar Ltd., Harihar, Kirlosker AAF Ltd., Bangalore, Kirloskar Electric Co. Ltd., Bangalore, ACC Babcok Ltd. (Now Alston Ltd.) Shahabad, NGEF Ltd., Bangalore, Mysore Lamps Ltd., Bangalore, GKW Ltd., Bangalore, etc. have been gradually disliked and blacklisted by their vendors. Most of these companies are either working much below their capacity or not working at all. This is as good as saying that the ‘SSI Vendor is more learned and talented than the large buying unit’.

Total rating percentage x=90.6%, y=94.7%, z=87%. Hence, vendor y is preferred for supply of the item under consideration.

System Concept:

The days of approximation, thumb rule and decisions based on experience are now considerably reduced. This is due to more education, developments, innovations, technology upgradation and increased awareness of knowledge management. Hence, systems concept is developed for business organisations which a systematic approach to get the tasks done more effectively efficiently, and economically.

The systems approach is an organised study for complex equipment design and the same can be completed with lesser time, cost and efforts. Systems tell how to manage the jobs or how to analyse complex phenomena under different environments. Systems approach is more practiced in engineering industries, infrastructure where prototype models can be built to study various relevant characteristics.

System:

A system is a collection of interacting elements that operate to achieve a predetermined objective. A system may be processing unit which receives certain inputs and is put to some action to give output, taking care of time-cost optimisation. Inputs may be in the form of energy, matter and information.

Processing units may be activated and controlled by men and machines. The output may be in the form of products, services or information and the objective may be to maximise output.

Some of the examples of system are as follows:

(a) An industrial organisation is a system with sub-systems like production, purchase, marketing, finance etc.

(b) A transportation is a system with sub-systems like road, rail, air and marine transportation.

(c) Human body is a system with subsystems like breathing, blood circulation, nervous etc.

(d) Hospital with resources is a system where the input includes medicines, medical instruments, patients etc., processing involves work of doctors, nurses and medication and output is relief to patients.